Global Financial Crisis in the USA - Essay Example

Global Financial Crisis in the USA The Global Financial Crisis resulted from a credit crisis when the US investors withdrew their investments from the mortgage industry resulting in a liquidity crisis (James, 2010.) The Federal bank responded by instilling large amounts of money into the financial market so as to save the industry. However, in 2008 the stock market globally crashed and became very unpredictable. This has profoundly affected the economy of various countries even the developed nations forcing the government to cope up with coping strategies.

The Global Financial Crisis significantly affected the USA economy resulting in the slow growth of the economy. In 2008, the USA experienced an economic growth rate of less than 2% which contributed to the large financial bailout by the already existing investors. Due to the slow economic growth, new investors show no interest in investing in the USA. The market insecurity has seriously affected the business industry leading to the closure of some of the financing industry. Following the collapse of the sub-prime mortgage company, the value of land and buildings has significantly depreciated (Andrew, 2009).

The financial crisis resulted in an increased rate of unemployment, which contributed to a fall in the USA's domestic demand (Joseph, 2008). This herd behavior has had adverse effects on the pricing of basic commodities, for example, energy, and food. It has also created consumer insecurity in the business market; therefore, leading to the collapse of various businesses. The decline in the capital investment market has profoundly affected the financial market. A report in 2009 indicated a drop of more than 23.

2% of the total capital investment (David, 2010). This has greatly disconnected the financial market from the macroeconomics thus disrupting the normal performance of the real economy. The US dollar has substantially lost value due to the attempts by the Federal Bank to finance the credit crunch. The budget imbalances on the on the revenues and income has widened during this financial crisis (Hillday, 2008). In an attempt to finance the deficit, the government has raised the taxes imposed on basic commodities.

The rise in the taxes has led to increased cost of production for the majority of the firms forcing them to close down. The financial crisis has posed a threat to domestic political stability. This is due to the numerous public protests on the poor living conditions, increasing rates of unemployment, and food prices inflation (Michael, 2010). Many US citizens have expressed their dissatisfaction with the government’s attempts to salvage the economy. The political insecurity significantly threatens the business environment in the country.

It has thus led to a financial drain by a majority of investors. The United Nations has recommended the formation of regional committees that should come up with policies to alleviate the effects of the global crises. These policies should address the inflation rates, fiscal crisis, capital market and come up with strategies to prevent the reoccurrence of the crisis. The United National advises that the global financial crisis can be resolved by addressing the rising rate of unemployment and restoring the confidence of the investors (Pearlson, 2011).

In conclusion, although the Global Financial Crisis emerged in the USA it affected the whole world. The developing, as well as the developed countries, were affected. In the USA, the domestic and international markets were affected resulting in a fall in the Gross Domestic Product per capita. It also had serious adverse effects on the domestic business environment, as the majority of the investors lost confidence in the market. This resulted in a liquidity crisis and the collapse of the economy.